Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

ACCT2101 > Lecture 6 - PPE > Flashcards

Lecture 6 - PPE Flashcards

1
Q

Define PPE.

A

Property Plant and Equipment. Tangible items held for use in production/supply of goods/services and expected to be used in more than one time period.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

When should PPE be recognised as an asset? (2 points)

A

1) PROBABLE that future economic benefit will flow to the entity
2) Cost can be reliably measured

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

How is PPE measured?

A

At cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are the 3 elements of PPE cost?

A

1) Purchase price
2) Import Duties
3) Non-refundable purchase taxes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is the journal entry for a NON-current asset?

A

Dr Non-Current asset (@cost)

Cr Cash OR loan payable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is a DEPRECIABLE asset?

A

A NON-current asset with a finite useful life

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the “depreciable amount”?

A

cost - residual value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is residual value?

A

Estimated amount from disposal - disposal costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are two possible measures of useful life?

A

1) The period over which an asset is expected to be available for use
OR
2) Number of production units expected

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the Journal entry for depreciation?

A

Dr Depreciation Expense

Cr Accumulated Depreciation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What type of asset is Accumulated Depreciation?

A

A contra asset -> A negative asset account that offsets the balance in the asset account with which it is paired. The purpose of a contra asset account is to store a reserve that reduces the balance in the paired account.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Carrying Amount is the amount recognised in financial statements, what is it analogous to and how is it calculated?

A

Analogous to Book Value.

Equal to Asset - Accumulated Depreciation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are 3 methods of Depreciation?

A

1) Straight Line
2) Reducing Balance
3) Production units

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is the rate of depreciation for the reducing Balance method?

A

Rate = 1 - (Salvage value/original cost)^(1/number of years)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What are the two models used to update value of Assets when they INCREASE?

A

1) Cost Model

2) Revaluation Model

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is the carrying amount for the cost model of asset revaluation?

A

CA = Cost - accumulated depreciation - accumulated impairment loss

17
Q

What is the carrying amount for the revaluation model of asset revaluation?

A

CA = Fair value @ date of revaluation - subsequent accumulated depreciation - subsequent accumulated impairment losses

18
Q

What are the three requirements for revaluations under the revaluation model?

A

Revaluations must:

1) Be measured RELIABLY
2) Be made for the entire PPE class
3) Be made with sufficient regularity

19
Q

In the Revaluation method there are three key steps. What is the first step and its associated Journal Entry?

A

Record Current Period Depreciation to Date
Dr Depreciation Expense
Cr Accumulated depreciation (for PPE class)

20
Q

In the Revaluation method there are three key steps. What is the second step and its associated Journal Entry?

A

Write-back accumulated depreciation to asset amount
Dr Accumulated depreciation
Cr PPE (i.e. buildings)

21
Q

In the Revaluation method there are three key steps. What is the third step and its associated Journal Entry IF ASSET VALUE INCREASES?

A

Record Revaluation
Dr PPE (i.e. Buildings)
Cr Revaluation surplus

22
Q

In the Revaluation method there are three key steps. What is the third step and its associated Journal Entry IF ASSET VALUE DECREASES?

A

Record Revaluation
Dr Loss on Revaluation
Cr PPE Class (i.e. Buildings)

23
Q

What are the 3 steps to revalue under the revaluation method?

A

1) Record current period depreciation
2) Write-back accumulated depreciation to asset account
3) Record revaluation

24
Q

What are the 3 Journal entries for Revaluation when asset value INCREASES?

A

1) Dr Depreciation Expense
Cr Accumulated Depreciation (PPE Class)
2) Dr Accumulated Depreciation (PPE Class)
Cr PPE Class (i.e. Buildings)
3) Dr PPE Class (i.e. Buildings)
Cr Revaluation Surplus

25
Q

What are the 3 Journal entries for Revaluation when asset value DECREASES?

A

1) Dr Depreciation Expense
Cr Accumulated Depreciation (PPE Class)
2) Dr Accumulated Depreciation (PPE Class)
Cr PPE Class (i.e. Buildings)
3) Dr Loss on Revaluations
Cr PPE Class (i.e. Buildings)

26
Q

What is the Journal Entry for a Reversal of a revaluation?

A 
For initial revaluation JE is:
Dr PPE Class (i.e. Buildings)
Cr           Revaluation surplus
Therefore reversal JE is simply:
Dr Revaluation Surplus
Cr            PPE Class (i.e. Buildings)
27
Q

What is Derecognition?

A

The removal of an asset from accounts. Might happen when asset is disposed or when no future economic benefits are expected from its use/disposal.

28
Q

Where is gain/loss from derecognition included?

A

In Profit/Loss statement.

29
Q

Should Gains from derecognition be classified as revenue?

A

No.

30
Q

What are the 3 steps to record Derecognition?

A

1) Record Current Period depreciation
2) Calculate Gain/loss on disposal
3) Record sale including write back of accumulated deprecition

31
Q

How is gain/loss on the disposal of an asset calculated?

A

Gain/Loss = Proceeds from sale - (cost - Accumulated depreciation)
NOTE: Carrying Amount = Cost - Accumulated Depreciation

32
Q

What are the 4 Journal Entries (2 Dr 2 Cr) to Record a GAIN on derecognition?

A 
Dr Cash (By Sale Price -> Proceeds)
Dr Accumulated Depreciation (By accum depr ->write back)
Cr        PPE (by cost of PPE -> Derecognising assets @ cost)
Cr        GAIN (by proceeds + Accum depr - cost -> gain)
33
Q

What are the 4 Journal Entries (3 Dr 1 Cr) to Record a LOSS on derecognition?

A 
Dr Cash (By Sale Price -> Proceeds)
Dr Accumulated Depreciation (By accum depr ->write back)
Cr        PPE (by cost of PPE -> Derecognising assets @ cost)
Dr        LOSS (by proceeds + Accum depr - cost -> loss)
34
Q

What happens when disposing revalued assets?

What is the associated Journal Entry?

A

Revaluation Surplus is transferred directly to retained profits.
Dr Revaluation Surplus
Cr Retained Profits

ACCT2101 (5 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions